Analysts warn that plan may fail to fix problems

Analysts question if GM will save that much money with buyouts.
DETROIT (AP) -- More than 125,000 hourly workers of General Motors Corp. and auto supplier Delphi Corp. are being offered buyouts or early retirement to help cut hefty labor costs, but industry analysts warned the plan released Wednesday may not be enough to restore the companies' financial health or avoid a paralyzing strike.
Under the program, about 113,000 GM workers will be eligible for early-retirement incentives or buyouts of between $35,000 and $140,000, depending on their years of service and whether they want to keep health care and other benefits.
At Delphi, GM's former parts division and largest supplier, 13,000 U.S. hourly workers will be eligible for a lump-sum payment of $35,000 to retire. Also, up to 5,000 Delphi workers will be eligible to return to GM.
About 80 percent of GM's 19,000 employees in Ohio are hourly workers at plants in Moraine, Lordstown, Toledo, Mansfield, Parma, Defiance, Cincinnati and Columbus. Delphi employs about 13,000 workers in Ohio at plants in the Dayton, Warren, Columbus and Sandusky areas.
This deal applies only to UAW workers. The companies are continuing discussions with the International Union of Electrical Workers and the United Steelworkers Union.
Significance
The deal comes at a critical time for GM, which increased by $2 billion its reported 2005 loss to $10.6 billion last week. The plan also is crucial for Delphi, the largest U.S. auto parts supplier, which is reorganizing in bankruptcy court after filing for Chapter 11 protection in October.
The companies made no predictions of how many employees might accept the offers or exactly how much they would save in operating costs. GM has a goal of cutting 30,000 hourly jobs by 2008.
Under the plan, GM would pay for the Delphi early-retirement incentives and assume some post-retirement benefits for Delphi employees who go back to work for GM.
Spokesman Dan Flores said GM didn't yet know the full cost of the plans, since it's unclear how many workers will participate.
Himanshu Patel, an auto analyst with JPMorgan, said GM will likely pay around $2 billion for the Delphi buyouts based on recent financial filings, while Merrill Lynch analyst John Murphy said GM will probably pay "well in excess of $1 billion" for its own buyouts.
Several analysts questioned how much GM and Delphi will save. Most workers who retire will get full benefits, which doesn't relieve GM's sizable pension obligations, Goldman Sachs analyst Robert Barry said in a note to investors. Barry added that savings gained from the retirement of younger workers will be offset by GM's assumption of Delphi retiree benefits.
Problems at Delphi
Analysts said it's also unclear what will happen to the bulk of Delphi's 34,000 hourly workers. Delphi remains in negotiations with GM and its unions to lower its labor costs, which it puts at $75 an hour in wages and benefits. Delphi has threatened to ask a bankruptcy judge to cancel its union contracts if it fails to reach an agreement by March 30. If the judge does cancel those contracts, the unions could call a strike that would cripple Delphi and GM.
"With a looming strike, they had to do something, but how they're going to address plant closures for Delphi and remaining workers' salaries are the two loose ends here," said Rebecca Lindland, an auto analyst with the consulting firm Global Insight.
Lindland added she's pessimistic about the number of people who will opt for the buyouts, especially younger workers who have no other health insurance. Some older workers also might not be persuaded, she said.
"I feel like people are going to look and say, 'Can I give up my job for $35,000?'" Lindland said.
GM shares were up a penny to close at $22.01 on the New York Stock Exchange.
The Delphi plan must be approved by the U.S. Bankruptcy Court. Delphi said it will ask a judge to consider the plan April 7. GM's plan doesn't require approval, and Flores said retirements could begin as early as June 1. Workers will have up to 52 days to decide whether to take the buyouts once they learn details in plant meetings.